2012 (6) TMI 344 - AT - Customs

Demand of duty - Purchase of Duty Exemption Pass Book license from third party - DEPB Scrip was obtained by fraud by third party - DGFT cancelled the DEPB scrip - Appellant contended that DEPB scrip purchased in good faith - Commissioner (Appeals) upheld the duty demanded but set aside fine and penalty Held that - once penalty does not stand imposed on the ground that there was no malafide on the part of the appellants, it has to be held that there was no intention to evade payment of duty and the same criteria would apply for the purpose of limitation. - Divergent views by two members

Issues Involved:

1. Validity and enforceability of duty demands and penalties based on fraudulent Duty Exemption Pass Book (DEPB) scrips.
2. Applicability of the extended period under Section 28 of the Customs Act for recovering duty.
3. Liability of the transferee for penalties when the DEPB scrips are later found to be fraudulently obtained.
4. Relevance and applicability of judicial precedents and decisions from higher courts.

Detailed Analysis:

1. Validity and Enforceability of Duty Demands and Penalties Based on Fraudulent DEPB Scrips:

The primary issue revolves around whether the duty forgone by the department on imports made using fraudulent DEPB scrips can be demanded and recovered from the appellant. The DEPB scrip in question was valid at the time of import but was later canceled due to fraud by the original holder. The Commissioner (Appeals) upheld the duty demand but waived the penalty, prompting appeals from both sides.

The appellant argued that they purchased the DEPB scrip in good faith and utilized it under the bona fide belief that it was valid. They contended that the duty demand is time-barred as no fraud was alleged on their part, invoking the principle that the extended period under Section 28 of the Customs Act cannot be applied without such an allegation.

2. Applicability of the Extended Period Under Section 28 of the Customs Act:

The central legal question is whether the extended period for recovering duty under Section 28 can be invoked when the fraud was committed by the transferor, not the transferee. The appellant cited multiple Supreme Court decisions, including CC vs. Ajay Kumar and CC vs. Leader Valves Ltd., which held that the extended period cannot be invoked against the transferee in such cases.

Conversely, the Revenue relied on the decisions in Friends Trading Co. and Sona Castings, where the extended period was applied due to the fraudulent nature of the DEPB scrips. The Tribunal noted that the latter decisions are more recent and thus binding, indicating a shift in the Supreme Court's approach.

3. Liability of the Transferee for Penalties:

The Tribunal examined whether penalties should be imposed on the transferee who imported goods using the fraudulent DEPB scrips. The Punjab and Haryana High Court in Friends Trading Co. and other cases held that penalties should not be imposed on the transferee in such situations. The Tribunal followed this reasoning and rejected the Revenue's appeal for imposing penalties.

4. Relevance and Applicability of Judicial Precedents:

The Tribunal analyzed various judicial precedents cited by both parties. It found that the decision in East India Commercial Co. Ltd. was not relevant due to its context under the old Sea Customs Act. The decision in Sneha Sales Corporation was distinguished as it involved a different type of license.

The Tribunal emphasized the importance of the latest Supreme Court decisions, particularly in Friends Trading Co. and Aafloat Textiles, which supported the application of the extended period in cases of fraudulent DEPB scrips. However, it also acknowledged the Larger Bench decision in Hico Enterprises, which protected the transferee's rights when the DEPB scrip was valid at the time of import.

Separate Judgment by Archana Wadhwa:

Archana Wadhwa, in a separate judgment, disagreed with the rejection of the appellant's appeal. She argued that the transferee should not be liable for duty demands when the DEPB scrip was valid at the time of import. She cited the Larger Bench decision in Hico Enterprises, which held that the transferee's rights are valid even if the original license was obtained fraudulently. She also emphasized that the extended period under Section 28 should not apply as there was no fraud or misrepresentation by the appellant.

Conclusion:

The Tribunal ultimately rejected all four appeals, upholding the duty demand but waiving the penalties. The decision reflects the complexity of balancing the protection of government revenue with the rights of bona fide purchasers of DEPB scrips. The judgment underscores the evolving legal landscape and the significance of recent judicial precedents in determining the applicability of extended periods for duty recovery.

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